Mar 7, 2006

Credit card interchange blog: What’s at stake in the interchange wars?

This blog is by Mitch Goldstone, lead plaintiff in a merchant class action antitrust lawsuit filed against Visa and MasterCard. "Out-of-control interchange fees for credit card transactions are a $25 billion tax on retail transactions that goes straight into the pockets of the card issuers," he writes.

There is a great deal of information here from the merchant’s point of view. A blog post on a recent article in merchant focused magazine, Green Sheet, summarizes the situation from the merchant processor’s angle (see “What’s at Stake in the Interchange Wars”).

The article concludes with advice by Aaron McPherson, Research Director of Payments at research and advisory firm Financial Insights and the author of a new research report on interchange titled "Waging the Interchange Wars”.

McPherson advises card processors to look for ways to increase value for merchants. "One option is to provide more information about cardholder spending patterns and work with merchants to create more customized rewards,” he says. “The card network has the potential to be a powerful marketing and customer relationship management tool for merchants, giving them a greater stake in the success of the system."

Some experts estimate that interchange represents up to one-third of card issuer revenues and up to 80% of card fees paid by merchants to acquirers. But the actual figures are hard to find in banks’ annual reports, since interchange revenue is combined with other non-interest income, like the annual fees charged to cardholders.

Related posts:
Finding hidden revenue in electronic payments data
Protecting interchange fees: what alternatives to litigation?
Key success factor #4: Show merchants how your payment brand can help solve major problems
Payment services that are irresistible, not just nice-to-have

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